Wall Street is the latest to join a host of academics and economists who unanimously agree U.S. businesses and consumers are footing the entire bill for Donald Trump’s tariff war against China.
Financial titan Goldman Sachs says in a new report tariffs levied on Chinese goods last year are being paid for “entirely” but U.S. businesses and households.
What’s more, the tariffs are having a bigger impact on consumer prices than previously thought.
“One might have expected that Chinese exporters of tariff-affected goods would have to lower their prices somewhat to compete in the US market, sharing in the cost of the tariffs,” the investment bank said.
“However, analysis at the extremely detailed item level in the two new studies shows no decline in the prices (exclusive of tariffs) of imported goods from China that faced tariffs,” the bank said.
Goldman also discovered U.S. producers have “opportunistically” hiked prices to cash in on Chinese price increases.
The conclusion is a stark contrast to Trump’s repeated boasts. He has repeatedly claimed the tariffs are generating “billions” of dollars for U.S. coffers.
“Our Country, economically, is doing great – the talk of the world!” he tweeted over the weekend.
But Goldman warned that another threatened round of tariff increases could shave 0.4% off the nation’s Gross Domestic Product (GDP), a measure of the output of goods and services.
The economy is already softening and some economists believe it’s heading for a recession. If trade tensions escalate, they could trigger a stock market sell off.
“The growth impact could worsen,” the Wall Street firm said.
Indeed, if Trump imposes another $300 billion in tariffs on Chinese imports later this year, the move could cost the average household $1,000 per year, according to another Wall Street mega-bank, JPMorgan Chase.
The Congressional Budget Office (CBO) also weighed in, saying “trade policies” were weighing on U.S. economic activity, particularly business investment.
“Businesses’ uncertainty about trade policies is expected to continue to weigh on private investment and, thus, output,” it said in an update on its budget and economic outlook for the next decade.
Economic output is expected to grow by 2.3 percent in 2019, thanks to a strong labor market. But after this year, growth will slip to 1.8 percent per year, less than the historical average, according to the CBO.
The federal budget deficit will hit $960 billion this year and soar to a projected average of $1.2 trillion a year between 2020 and 2029. Debt will rise to 95 percent of GDP by then, the highest level since just after World War II, the budget agency noted.
Goldman said its “basline expectation” is for a U.S.-China deal later this year that would end the tariff war.
“We think this would come in the form of a gradual, staggered reduction in tariffs on a last-in, first-out schedule,” the bank said.
But it added “a risk of further escalation” is also possible.
Trump, however, remains undeterred.
“The tariffs have cost nothing, in my opinion. …And we’re not paying for the tariffs; China is paying for the tariffs, for the one-hundredth time,” he told reporters in August, according to an AP fact check.
“Trump refuses to recognize a reality that his own chief economic adviser, Larry Kudlow, has acknowledged. Tariffs are mainly, if not entirely, paid by companies and consumers in the country that imposes them. China is not sending billions of dollars to the U.S. treasury,” the AP reported.